Ag economists say farm bill future uncertain

The farm bill's future is uncertain, and Congress' inability to compromise could revert farm policy to 60-year-old permanent law. That would bring many changes to current commodity- and price-support programs. Ag economists with Oklahoma State University have outlined the potential effects in a farm bill report this month.

Congress’ inability to compromise on agriculture policy, and a limited number of working days before the end of the session is raising uncertainty over the prospects for the passage of a new farm bill.

That’s the conclusion of a farm bill report this month by Oklahoma State University ag economists Jody Campiche and Larry Sanders.

It is also uncertain whether Congress or the president would approve a second extension of the 2008 Farm Bill, they said.

That farm bill expired Sept. 30, 2012, and was extended a year but expired again this Sept. 30.

When it was extended, however, 37 programs – including agricultural disaster assistance – were not continued because they did not have baseline funding past 2012. Refunding those programs would demand $9 billion to $14 billion in funding, but farm bill deliberations in the past two years suggests the conference committee is unlikely to find compromise, Campiche and Sanders said.

When a farm bill expires, Congress has three choices: pass a new bill, extend the expired bill, or revert to permanent law included in the Agricultural Adjustment Acts of 1938 and 1949.

The authors say most people agree that a reversion to permanent law is highly unlikely because of its severely outdated policies, but lack of compromise could result in that occurrence.

That chance scares people, she said. But many oppose repealing the permanent law because it acts as a threat and forces Congress to pass a new bill.

The ag economists’ recent report on the farm bill addresses those concerns and explains how ag programs would be affected under permanent law.

A reversion to permanent law would affect dairy first through the Dairy Product Support Program, and its parity pricing would carry substantial impacts.

The minimum support price – at which USDA purchases nonfat dry milk, cheddar cheese and butter – would be $37.12 per hundredweight of milk based on a parity price of $49.50. That compares to the current support price of $9.90 and a September market price of $19 per hundredweight, the report states.

That could lead to high government costs and significant increases in the retail price of milk, they said.

Parity pricing is based on the idea from the early 1900s. It holds that an equal exchange relationship should exist between agriculture and the rest of the economy and that the price received for a product should increase or decrease by the same amount as input prices.

A common example of the parity concept is that if a bushel of wheat would buy a pair of overalls in 1910, it should be able to do so in 2010, the authors stated.

But the ag industry has experienced tremendous productivity increases and advances in technology over the last 100 years, and parity prices are no longer valid as a commodity support tool, they said.

A return to permanent law would also affect other commodity programs.

Ag subsidies would be much higher since parity prices would be significantly higher than current support and market prices.

Another key difference is that target prices, used for calculating counter-cyclical payments, did not exist in permanent law. Instead, basic commodity producers received price supports in the form of marketing assistance or nonrecourse loans, in which producers use the commodity as collateral and have the option to pay off the loan by forfeiting the commodity to the Commodity Credit Corporation.

If parity pricing were in place, loan rates would be so high that producers would likely forfeit quantities of commodity, the authors stated.

In addition, the farm bill currently operates on crop-year basis, and permanent law operates on a market-year basis. That could limit how much of a crop could be sold annually if marketing quotas were enacted, according to USDA.

It’s not clear if price support would be provided through purchases, loans, etc., or what percentage of parity price support would be available for each commodity since the USDA secretary has the discretion to make those decisions. The secretary could also decide which nonbasic commodities would receive price support, according to an earlier USDA analysis.

Other ag programs are authorized outside the farm bill and would not be affected by permanent law, including conservation, nutrition, crop insurance, and most rural development programs, the authors stated.

What the ag community found out from last year’s expiration of the farm bill is that the sky doesn’t fall for several weeks, even without a farm bill, said D.C. ag lobbyist Charlie Garrison.

“We can go into early 2014 without bad things happening,” he said.

Price support programs usually go through the end of the year and commodity supports go into effect with the crop year, he said.

If farm bill conferees can find compromise in the wide division over funding SNAP (Supplemental Nutrition Assistance Program), a conference report will go straight to the Senate and House floors for an up-or-down vote, he said.

If no compromise is found, the farm bill could be wrapped into a bigger bill of must-pass legislation aimed at funding the government for the rest of FY 2014. The recent legislation to end the government shutdown is only good until Jan. 15, he said.